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Tuesday, 21 November 2017

SRI Bond: ​ABN AMRO's €500m five-year Green bond

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Best practice

ABN AMRO’s debut Green bond not only set a great example for best practice in terms of transparency, auditing and certification, but also enjoyed high-quality deal execution during difficult market conditions.

There had been several bank bonds in the SRI sector prior to this deal but ABN has created a hard-to-beat template for any commercial bank that wants to shift its activities towards sustainability.

The €500m proceeds will be used exclusively to finance and refinance loans related to sustainable real estate – the first time a bank will fund residential mortgages via a “use of proceeds” Green bond.

Other proceeds are earmarked for Green loans for financing solar panels installed on residential buildings as well as commercial real estate loans for the construction and financing of energy-efficient buildings.

So the funds are earmarked for green projects. But the bank wanted to explicitly connect these activities with dedicated green investor demand. So it set out eligibility criteria in a Green bond framework. It also got a real estate consultancy, W/E, to provide upfront impact indicators.

Not only did ABN obtain a second opinion on the bond, from Oekom Research, but the bond was also one of the first to be certified under the Climate Bonds Standard. This certifies that the proceeds meet low carbon building criteria created by the Climate Bond Initiative.

The bank says that around 50,000 tonnes of carbon emissions are avoided under the model portfolio.

ABN also went much further than most corporate and bank issuers and ensured that the proceeds are subject to external verification by auditors.

No surprise then that the bond sold to a very high ratio of investors with dedicated Green bond funds – some 60%, with so-called “light-Green” funds snapping up 12%.

The issuer achieved a great outcome in a difficult market. Not only was the deal upsized from €350m, as investor orders neared €1bn, but the bank also only paid s 7bp–9bp new issue premium when many banks were paying double-digit concessions on senior trades.

Credit Agricole, one of the transaction’s lead managers, said that bond’s strong performance in the primary and then secondary market was explained by its underlying standards.

Given the size of the banking sector in the bond market, it is a positive sign that a deal like this, with external auditing and annual measurement at the centre, is the template.

To see the digital version of the IFR Review of the Year, please click here .

To purchase printed copies or a PDF of this report, please email gloria.balbastro@tr.com .

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